Rupee down on dollar outflows

The rupee fell 1% on Tuesday on the back of unwinding of carry trades and corporate dollar demand. The stronger-than-expected economic data released in the US on Monday also rekindled fears of aggressive Fed rate hikes.

After opening at 81.9150 per dollar, the rupee fell to 82.6025, compared to its previous close of 81.7975 on Monday, according to Bloomberg.

MSCI outflows at the beginning of the month and the stop losses getting triggered above 82 led to a further depreciation of the currency and ended the session at day’s low.

USD/INR 1-year forward premiums sank to 1.64%, their lowest since 2010 and down over 300 basis points year-to-date. A decline in the forward premium is making carry trade unviable and also reducing exporter hedging.

“Another 0.80 ps gone on rupee today as stop losses and a big corporate debt repayment and dollar outflow demand from a foreign bank counter took it down to 82.60 after going to 81 on Friday. The rupee has fallen against all currencies and has been one of the worst performing currencies in these last two days. Dollar index has risen to 105.27 from a low of 104.27,” said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.

Analysts expect RBI to intervene and look at introducing a buy-sell swap to stem the volatility in the currency

“Recently the Indian rupee has been the worst performing currency. It’s trading at a level RBI is uncomfortable. We expect RBI to intervene in the spot market or introduce a $5-10 bn sell buy swap which will inflate forward premia and also protect reserves,’ said Anindya Banerjee, VP – Currency Derivatives & Interest Rate Derivatives at Kotak Securities.